The president of IBM asks you to evaluate the purchase of a superbcalculator for the I.T department. The base price is $160,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $70,000. The equipment would require an $9,000 increase in net working capital. The project would have no effect on revenues, but it should save $80,000 per year in before-tax labor costs. The firms marginal federal-plus-state tax rate is 40%.

1. What is the initial investment outlay for the superbcalculator, that is, what is the Year 0 project cash flow?
2. What are the projects annual cash flow in Years 1,2 and 3?
3. If the WACC is 11%, should the superbcalculator be purchased? Explain.